The State of Markets: “Bonds: Blow-off Top?”
Key asset prices have moved sharply this week. That was triggered by Wednesday’s better than expected US inflation data. The rally in Treasuries was particularly notable with yields falling a cumulative 20bps from Tuesday’s highs – see key chart below. That illustrates the crowded nature of the short/bearish positioning in bonds coming into this week (which generates the bond market’s heightened sensitivity to positive inflation news). That move in yields has influenced other key asset prices this week. Equities, for example, delivered strong gains, while certain liquidity sensitive assets pushed higher (e.g. Bitcoin).
The key question, therefore, is: Are bond yields still trending up, or does this week’s reversal mark a turning point? That is, have we had the ‘blow-off top’ in bonds (i.e. similar to the price action in April 2024 and October 2023 – see below)? We outline our views on those questions in recent research (e.g. see this week’s ‘Daily Risk Appetite’ & ‘Tactical Asset Allocation’ publications). For our latest medium term view on US Treasuries, see this week’s tactical (1 – 4 month) update, available below for subscribers (or for a trial click HERE).
Next week’s macro data will be watched closely and includes the US Conference Board Leading index (Wednesday) as well as flash PMIs for the US, UK, and a number of key Eurozone economies (all due on Friday, January data). There are also central bank policy decisions this week by the PBoC (Monday) and the BoJ (Friday). Elsewhere the annual Davos conference starts on Monday. There are also several key US earnings reports, including Netflix (Tuesday), J&J (Wednesday) and Texas Instruments (Thursday). Please see below for a full list of key data & events this coming week.
Key chart: US 10 year Treasury yield (%), shown with 50, 90, & 200 day moving averages
Upcoming important data/events this week:
Events: |
PBOC policy decision (Mon, 1am); BOJ policy decision (Fri, time tentative); US Presidential inauguration & market holiday in the US on account of Martin Luther King, Jr. Day (Mon); World Economic Forum (WEF) takes place in Davos (Mon – Fri) where key ECB members are scheduled to speak, e.g. Lagarde (Wed at 3:05pm & Fri at 10am). |
Monday: |
German PPI (Dec, 7am). |
Tuesday: |
UK employment, jobless claims & average weekly earnings (Dec/Nov, 7am). |
Wednesday: |
US Conference Board leading index (Dec, 3pm). |
Thursday: |
Eurozone consumer confidence (January first estimate, 3pm). |
Friday: |
Flash PMIs for manufacturing & service sector for Japan (12:30am), France (8:15am), Germany (8:30am), Eurozone (9am), UK (9:30am) & US (2:45pm) – all January first estimates; US existing home sales (Dec, 3pm). |
Key earnings: |
Netflix, Charles Schwab (Tues); P&G, J&J (Wed); Louis Vuitton, SK Hynix Inc, GE Aerospace, Texas Instruments, Union Pacific (Thurs); American Express, Verizon (Fri). |
Key Research
Longview ‘Tactical’ Alert No. 87, 15th January 2025:
“MOVE Tactically OW BONDS a.k.a. Various Equity SELL Signals Have Now Shifted onto BUY”
Sharp moves on economic data (which is arguably only a modest positive surprise – see below) is indicative of overly crowded positioning (i.e. which is largely facing in the same direction).
Arguably that is what has happened today on the back of the US CPI data. CPI data was released at 1:30pm London time (8:30am EST). It came in 1/10th below expectations for monthly & annual core CPI (0.2% m-o-m vs 0.3%; & 3.2% vs 3.3% expected). Headline was in line with expectations (see table 1 below).
Key North American macro data & events:
Events: |
US Presidential inauguration & market holiday in the US on account of Martin Luther King, Jr. Day (Mon). |
Monday: |
N/A |
Tuesday: |
US Philadelphia Fed service sector activity (Jan, 1:30pm); Canadian headline CPI (Dec, 1:30pm). |
Wednesday: |
US Conference Board leading index (Dec, 3pm). |
Thursday: |
Canadian retail sales (Nov, 1:30pm); US weekly jobless claims (1:30pm); US Kansas City Fed manufacturing sector activity (Jan, 4pm). |
Friday: |
US S&P manufacturing & service sector PMIs (January first estimate, 2:45pm); US Michigan sentiment (January final estimate, 3pm); US existing home sales (Dec, 3pm); US Kansas City Fed service sector activity (Jan, 4pm). |
Key earnings: |
Netflix, Charles Schwab, Prologis, 3M, Capital One Financial (Tues); P&G, J&J, ServiceNow lnc, Abbott Labs, Progressive, GE Vernova LLC, Amphenol, Kinder Morgan (Wed); Intuitive Surgical, GE Aerospace, Texas Instruments, Union Pacific, Elevance Health, CSX, Freeport-McMoran (Thurs); American Express, Verizon, NextEra Energy, HCA (Fri). |
Fig B: US Conference Board leading index (Y-o-Y %)
Key European macro data & events
Events: |
Speeches by the ECB’s Vujcic at LC-MA Forum on The Future of Inflation (Mon, 2pm), Holzmann at the conference of Austrian National Bank on energy-market regulation (Mon, 2:30pm); Centeno in Lisbon (Tues, 11am), Villeroy, Knot & Lagarde in Davos (Wed, 9:15am, 10:30am & 3:05pm), Escriva in Davos (Thurs, 10:30am), Lagarde in Davos (Fri, 10am) & Cipollone appears on CBDR panel in Frankfurt (Fri, 11am). |
Monday: |
German PPI (Dec, 7am); Spanish home sales (Nov, 8am); Eurozone construction output (Nov, 10am). |
Tuesday: |
Eurozone new car sales (Dec, 5am); German & Eurozone ZEW survey – expectations & current situation (Jan, 10am). |
Wednesday: |
N/A |
Thursday: |
French INSEE business & manufacturing confidence (Jan, 7:45am); Eurozone consumer confidence (January first estimate, 3pm). |
Friday: |
Spanish mortgage approvals (Nov, 8am); Spanish PPI (Dec, 8am); HCOB manufacturing & service sector PMIs for France (8:15am), Germany (8:30am) & Eurozone (9am) – all January first estimates. |
Key earnings: |
Louis Vuitton, Investor AB, EQT AB (Thurs). |
Fig C: Eurozone consumer confidence (index)
Key UK macro data & events
Events: |
Speech by the Bank of England’s Wilkins on geopolitics and financial stability (Thurs, 10am). |
Monday: |
Rightmove house prices (Jan, 12:01am). |
Tuesday: |
Employment, jobless claims & average weekly earnings (Dec/Nov, 7am). |
Wednesday: |
Public sector finances (Dec, 7am). |
Thursday: |
CBI industrial trends survey (Jan, 11am). |
Friday: |
Gfk consumer confidence (Jan, 12:01am); S&P manufacturing & service sector PMIs (January first estimates, 9:30am); CBI distributive trade survey (Jan, 11am). |
Key earnings: |
N/A |
Fig D: UK S&P manufacturing & service sector PMIs
Key Asia-Pacific macro data & events
Events: |
PBOC policy decision (Mon, 1am); BOJ policy decision including GDP & CPI Q1 forecasts (Fri, time tentative). |
Monday: |
Japanese industrial production & capacity utilisation (November final estimate, 4:30am). |
Tuesday: |
Australian Westpac leading index (Dec, 11:30pm). |
Wednesday: |
Japanese imports/exports, & trade balance (Dec, 11:50pm). |
Thursday: |
Australian S&P manufacturing & service sector PMIs (January first estimate, 10pm); Japanese headline & core CPI (Dec, 11:30pm). |
Friday: |
Japanese Jibun Bank manufacturing & service sector PMIs (January first estimate, 12:30am). |
Key earnings: |
Kia Corp (Wed); SK Hynix Inc, Hyundai Motor (Thurs); LG Energy Solution (Fri). |
Fig E: Japanese Jibun Bank manufacturing & service sector PMIs (index)
Last week:
Longview on Friday, 17th January 2025:
“Bond Yield Tops; & the Cheapness of Defensive Assets”
Longview ‘Tactical’ Alert No. 87, 15th January 2025:
"MOVE Tactically OW BONDS a.k.a. Various Equity SELL Signals Have Now Shifted onto BUY"
The SHORT VIEW (& market positioning), 14th January 2025:
"US Dollar: Blow-Off Top?"
Prior week:
Longview on Friday, 10th January 2025:
“Four Reasons US Growth Looks Set to Disappoint in 1H2025”
The SHORT VIEW (& market positioning), 9th January 2025:
“The January Effect… a.k.a. Is it correct that ‘So January Goes, so Goes the year’?”
Tactical Equity Asset Allocation No. 242, 7th January 2025:
“Bull Market is Tiring - BUT US Equity Uptrend Remains Ongoing For Now (Stay Tactically OW)”